It has been one of the most protracted games of "will he, won't he"
the City has ever seen, but on Tuesday James Murdoch bowed to shareholder
pressure and stepped down as BSkyB's chairman.

In doing so, he has all but ended an eight-year relationship with the pay-TV broadcaster that has been bookended by controversy. First, when his father, Rupert, crowned him chief executive of the FTSE 100 company at the tender age of 30. And latterly when he spectacularly misjudged the strength of shareholder anger and attempted to ride out the News of the World phone-hacking scandal.

Most other chairmen would have been shown the door when the hacking row erupted last summer but, whether by virtue of his surname or his status as BSkyB's one-time chief executive, Mr Murdoch was allowed to remain. Even now, he has clung on as a non-executive director, instead of making a clean break.

BSkyB's board members – who unanimously and vociferously backed Mr Murdoch at the company's annual general meeting in November – have buried their heads in the sand, allowing corporate governance concerns to fester, obscuring BSkyB's not insubstantial virtues.

Loyalists will point out that many of BSkyB's strengths were James Murdoch's doing in the first place. While chief executive, he helped transform the company from a loss-making business routinely ridiculed for its sluggishness, to a sure-footed market leader, generating more than £1.2bn in cash every year.

Mr Murdoch is credited with spearheading BSkyB's investments in new technology, including the sophisticated set-top boxes that gave it a clear lead over competitors. He set the ambitious target of 10m subscribers, which BSkyB managed in 2010, and was influential in going after major sports rights.

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According to insiders, Mr Murdoch also took the early decision to offer broadband and telephony services, broadening out BSkyB from a pay-TV operator to something approaching a utilities business. They are less eager to recall that, as chairman, he oversaw its acquisition of a 17.9pc "blocking stake" in ITV. Its gambled failed and - after wranglings with Ofcom – BSkyB took a £348m loss on the deal.

However, even brushing aside the last point, Mr Murdoch's achievements have been overshadowed by his failures. In his letter to the board, he expressed fears that he "could become a lightning rod" for BSkyB. Some critics say he already has.

Even Crispin Odey, one of BSkyB's biggest shareholders, who was once married to Rupert Murdoch's eldest daughter Prudence and has long endorsed James's strategic abilities, accepted there were some benefits to his departure. "It really does weaken the Murdoch link. It's good news from a shareholder perspective," he said.

For many, appointing James as chairman was always the wrong move. It handed News Corp far too much power and stored up future problems. "The company should have appointed an independent chair last summer, to create a clear separation between the business and the scandal at News Corp," said Alan MacDougall, of shareholder lobby group Pirc.

The Local Authority Pension Fund Forum added that Mr Murdoch's decision to quit his "problematic" chairmanship went "some way" to achieving the much-needed distance between BSkyB and the hacking scandal.

But while BSkyB's directors would be forgiven for breathing a quiet sigh of relief over his resignation on Tuesday, they would be mistaken in thinking that BSkyB's troubles with News Corporation and the Murdochs are over.

Many shareholders continue to object to James Murdoch having any boardroom role, as well as to the heavy presence of his family's allies on the board. Its new chairman, Nicholas Ferguson, has served as a BSkyB director since 2004 - just short of the nine-year maximum considered good corporate governance. Its new deputy chairman, Tom Mockridge, is chief executive of News International and part of Rupert Murdoch's inner circle.

Investors are likely to continue their campaign for a full board shake-up. Dame Gail Rebuck, chief executive of Random House publishing, and Lord Wilson of Dinton are already expected to step down from the board, and shareholders are unlikely to be satisfied by anything other than a rigorously independent replacement.

However, a more serious threat is Ofcom's "fit and proper" test. The regulator, which has the power to revoke BSkyB's broadcasting licences and pull the rug from under its entire business model, has been relatively quiet on the subject in recent months. It was waiting for the Culture, Media and Sport Select Committee to conclude its own inquiry but, with the Committee due to publish its report after Easter, Ofcom on Tuesday reminded BSkyB of the looming threat. The regulator "continues to gather evidence which may assist us in assessing whether BSkyB is and remains fit and proper to hold its broadcast licenses", it said. It added pointedly that a licensee "will include controlling directors and shareholders".

In other words, James Murdoch might well have resigned his position, but Ofcom may need a lot more convincing before it believes News Corp has stopped trying to control the broadcaster. It was only nine months ago that Rupert Murdoch looked set to add BSkyB to his media empire, as News Corp teetered on the brink of acquiring the 61pc of the business it did not already own.

Now, even after James Murdoch's belated resignation, it may be forced to sell down its existing stake.